Fletcher affected by govt move to cut tariffs, Key says

May 16 (BusinessDesk) – Fletcher Building, New
Zealand’s dominant building materials company, will be
affected by falling prices as a result of the government’s
decision to cut tariffs on imported building supplies to
improve housing affordability, Prime Minister John Key
said.

The National-led government announced in the budget
yesterday that it would cut tariffs and anti-dumping duties
on building products to zero, in a bid to introduce more
competition into the sector. The government, facing an
election in September, is trying to reduce the cost of
housing, which is being underpinned by lack of supply in
earthquake damaged Christchurch, and increased migration
driving up prices in the nation’s largest city,
Auckland.

“Fletchers are the obviously affected
party,” Key said on the sidelines of a post-budget
Trans-Tasman Business Circle lunch in Auckland. “While
this will reduce the price, and Fletchers will have to make
their own commercial decision about what they do, we don’t
think in any way it will challenge the viability of their
plant.”

A lack of competition
for building materials is among reasons cited in a 2012
Productivity Commission report that found it costs as much
as 30 percent more to build a house in New Zealand than
Australia. The Commerce Commission is currently probing
Fletcher’s plasterboard supply arrangements with building
supplies merchants as its German rival Knauf struggles to
get its products into stores.

Fletcher and Knauf have
recently been in a High Court tussle over how insulation can
be marketed in New Zealand after Knauf started selling its
Earthwool insulation here, rivalling Fletcher’s Pink Batts
product.

Key said the price of housing was a
“perennial” issue for the country, and while house price
rises aren’t surprising in a growing economy, the pace was
concerning. Though demand could be controlled by higher
interest rates, the government was committed to more houses
being built to tackle supply constraints, he said.

As
part of new laws passed last year, the government has agreed
formal Housing Accords with Auckland and Christchurch and is
in talks with local authorities in Wellington, Bay of Plenty
and Queenstown in an attempt to boost the availability of
affordable housing.

The government is trying to clamp down
on what could be a $3.3 billion annual spend in on building
materials over the next five to eight years in the state
sector, as it deals with the fall-out of the Canterbury
rebuild and the ongoing leaky homes saga.

“There’s
plenty of work, and we think more competitiveness and
competition in the building supplies area we think is a good
thing,” Key said.

The government estimates the loss of
tariffs would reduce the cost of an average house build by
$3,500, at a cost to the government of $27.8 million over
five years.

The three-year suspension of anti-dumping
duties on plasterboard, reinforcing steel bar and wire nails
will be effective from June 1, while the removal of tariffs
is effective July 1. Key said today the changes could become
permanent.

The duty cuts will include products such as
plasterboard, reinforcing steel bar and wire nails, and
tariffs will fall to zero for products such as roofing,
cladding, insulation, paints, electrical and plumbing and
fittings. Headline tariff and anti-dumping duty rates sit at
around 5 percent for most of the products involved.

Other
construction supplies likely to be affected include the
Pacific Steel roofing business, recently acquired by
Australian steelmaker Bluescope from Fletcher Building and
Carter Holt Harvey’s building supplies
arm.

The Wellington-based BusinessDesk team led by former Bloomberg Asian top editor Jonathan Underhill and Qantas Award-winning journalist and commentator Pattrick Smellie provides a daily news feed for a serious business audience.

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